USPTO Claim/Continuation Limit Rules Blocked

According to the the Practising Law Institute's "Patent Blog," PLI founder John White heard "an audible sigh in the courtroom when Judge Cacheris said the rules were enjoined:"

Judge Cacheris did not make any statements about the likely merits of the case
when making his ruling from the bench. He will, however, be issuing a formal written opinion which will be entered sometime this afternoon. As soon as we receive that ruling we will post it together with our analysis.

Thanks to Patently-O for posting a copy of the order which states:

4) Defendants are preliminarily enjoined from implementing the Final Rules titled “Changes to Practice for Continued Examination Failings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications,” 72 Fed. Reg. 46716, 46716-46843 (Aug. 21, 2007)(to be codified at 37 C.F.R. pt. 1);

5) Defendants are preliminary enjoined from issuing new regulations restricting the number of continuing applications, the number of requests for continued examination, and the number of claims that may be filed with the PTO;

6) This Order shall expire upon the entry of a final judgment in this matter, unless otherwise ordered by the Court;

PLI has also posted the39-page Memorandum Opinion, which includes these highly-redacted highlights:

C. GSK’s Motion for a TRO and Preliminary Injunction

In carefully weighing the factors of the Federal Circuit’s balancing test, for the reasons stated below, the Court will grant GSK’s Motion for a Preliminary Injunction.

1) Likelihood of Success on the Merits

. . . As the Court will explain, GSK raises serious concerns as to whether the Final Rules comport with the Patent Act. In addition, the Court also believes that GSK has created a colorable question as to whether the Final Rules are truly substantive. Thus, the Court will find that there is a genuine possibility that GSK will succeed on this issue.

GSK’s second claim, alluded to by the Court above, is that Final Rules 78, 114, 75, and 265 exceed the plain language of Title 35. . . . The PTO responds that Final Rule 78 is within its authority under Section 2(b)(2), is not an absolute bar to filing a third continuing application, and that the PTO will review petitions for a third application “on a case-by-case basis.” Defs.’ Opp’n to Pls.’ Mot. at 26 n.20; Ex. 2 to Defs.’ Opp’n at 46770-76. Nevertheless, the Court believes that, on balance, the law on this question tips in favor of GSK, and thus the Court will find that GSK has demonstrated a likelihood of success on this issue.

GSK further argues that 35 U.S.C. § 132 prohibits the promulgation of Final Rule 114, which governs RCEs. Section 132(b) requires that the PTO “prescribe regulations to provide for the continued examination of applications for patent at the
request of the applicant.” 35 U.S.C. § 132(b). While GSK reads this language and finds that Congress did not grant the PTO the authority to restrict the number of RCEs that may be filed, the PTO argues that Final Rule 114 complies with Section 132 even though it requires that a petition and showing accompany the filing of a second RCE. Given the limited briefing of this issue by both parties, the Court will find that, for the purposes of this motion, neither party can claim a strong likelihood of success on this issue.

GSK makes a similar claim with respect to Final Rules 75 and 265, which limit the number of claims an applicant may file. Section 111 and 112, the relevant statutory provisions, are similar to Sections 120 and 132 in that they do not specify whether the PTO has the authority to place a limit on the number of claims an applicant may file. 35 U.S.C. §§ 111 and 112. The PTO argues that it is entitled to Chevron deference on this issue because of the ambiguity of Section 2(b)(2). GSK, however, has raised serious questions as to whether the PTO is entitled to Chevron deference in this case. Nevertheles, given the limited briefing of this issue by both parties, the Court will find that, for the purposes of this motion, neither party can claim a strong likelihood of success on this issue.

The PTO justifies each of these rule changes on the grounds of administrative efficiency. GSK challenges this rationale as arbitrary and capricious because “it has not been adequately explained, ignores less-drastic and less-damaging alternatives to restricting abusive continuation applications, and is not supported by the PTO’s statistics on the number of third or subsequent continuation applications.” . . . Though the Final Rules would reduce the PTO’s backlog by only 2.7% and, by their own admission, are insufficient to reduce the backlog to a reasonable level, PTO models show that they will have an impact on the backlog. See Ex. 1 to Defs.’ Opp’n to Pls.’ Mot. at A05645. Thus, the PTO’s rationale appears to be sufficient to satisfy arbitrary and capricious review, and the Court will find that GSK has not shown a real likelihood of success on this issue.

GSK also takes issue with the alleged retroactive application of the Final Rules. . . . The Final Rules retroactively alter the bargain on which inventors like GSK rely in making their decision to surrender their rights. The Final Rules thus impair GSK’s right to this bargain. Furthermore, while procedural rules often do not raise retroactivity concerns when applied to pending applications, see Landsgraf, 511 U.S. at 275, there remains a serious question as to whether the Final Rules even qualify as procedural. Given all of these factors, the Court will find that GSK has demonstrated a real likelihood of success on the issue.

Finally, GSK claims that Final Rule 265, which delineates the requirements of an ESD, is unconstitutionally vague because it fails to provide “any boundaries on the scope of the search.” Mem. in Support of Pls.’ Mot. for a TRO and Prelim. Inj. at 26. Specifically, GSK complains that the “rule does not indicate whether the applicant must conduct electronic searches, manual searches, or both; in which countries’ databases the applicant must search; or which libraries it must search.” Id. at 27. According to GSK, the ESD requirement forces applicants to “search the patent literature of the entire world, as well as unspecified yet relevant ‘non patent literature.’” Pls.’ Reply Mem. at 18-19.

The PTO responds that, under Marsh, GSK does not have a vested property right in its patent application and therefore cannot bring a constitutional vagueness challenge. Defs.’ Opp’n to Pls.’ Mot. at 35. Regardless, the PTO also contends that the ESD requirements are sufficiently clear for applicants to be able to comply. The D.C. Circuit has found that to satisfy due process requirements, regulations “must be sufficiently specific . . . that a reasonably prudent person, familiar with the conditions the regulations are meant to address and the objectives the regulations are meant to achieve, would have fair warning of what the regulations require.” Freeman United Coal Mining Co. v. Fed. Mine Safety & Health Rev. Comm’n, 108 F.3d 358, 362 (D.C. Cir. 1997).

In the final Federal Register notice, the PTO explained that “[t]he standard for the preexamination search . . . is the same standard that the [PTO] uses to examine patent applications, which is set forth in MPEP §§ 904-904.03,” and that following the MPEP §§ 904-904.03 standard “should be sufficient” to meet the ESD requirements. Ex. 2 to Defs.’ Opp’n to Pls.’ Mot. at 46800. The PTO has also published further guidance documents to assist applicants in meeting these requirements. See Ex. 4 to Defs.’ Opp’n to Pls.’ Mot. at Ex. A “Guidelines for Examination Support Document (“ESD”) under 37 CFR 1.265."

In response, GSK notes that the need for official guidance suggests an admission of vagueness. Moreover, any guidance documents generated by the PTO outside of the notice and comment rulemaking process violate the Administrative Procedure Act. See Appalachian Power Co. v. E.P.A., 208 F.3d 1015, 1028 (D.C. Cir. 2000). Thus, because the Court believes that GSK has raised serious concerns as to whether a reasonably prudent person would be able to comply with the ESD requirements, the Court will find that GSK has demonstrated a real likelihood of success on this issue.

Based on the difficult legal questions presented by this case, the Court will find that, in sum, the likelihood of success on the merits factor weighs in favor of GSK.

2) Irreparable harm to GSK if injunction is not granted

If the Final Rules go into effect on November 1, GSK claims that they will experience significant irreparable harm. GSK has about two thousand pending applications, the rights of which would be changed under the new rules. In particular, GSK’s ability to file continuing applications for those patent applications is truncated, and they will be unable to file the further claims they expected regarding applications for inventions that were developed based on the current rules.

. . . The PTO argues that GSK does not identify a specific patent application they intend to file immediately upon the implementation of the Final Rules, which the PTO offers as evidence that GSK will not experience certain harm. The PTO also explains the steps GSK might be able to take under the Final Rules which could prevent the loss of patent protection for at least one patent family. The mere necessity to make decisions or adjust patent prosecution strategy is not specific harm requiring a preliminary injunction. The PTO characterize the harms outlined by GSK as speculative and not immediate, emphasizing that GSK cannot definitely delineate certain, concrete financial harm beyond the costs of implementing the regulations. Although GSK cannot pinpoint an exact amount of monetary loss, the uncertainty caused by the regulations will cause harm to their investments and provide a disincentive to their filing of new patent applications for researching new pharmaceutical products. In addition, there is still some question as to whether following the complicated steps outlined by the PTO will indeed guard against lost patent protection. Finally, GSK will be unable to recover their losses if the Final Rules are ultimately determined to be invalid. Therefore, the Court finds that GSK is likely to suffer irreparable harm if the preliminary injunction is not granted.

3) The balance of hardships between the parties

The PTO claims that the balance of hardships tilts in their favor because they will have to endure the hardship caused by forcing a large organization in the midst of instituting a massive change to stop and reverse course. The PTO has spent millions of dollars training their staff and retooling their computer systems to prepare for the implementation of the Final Rules, changes that cannot be easily undone or simply placed on hold. If subjected to a preliminary injunction, they will be forced to use sub-standard systems, exposing themselves to the possibility of costly computer problems. In addition, they will continue to encounter the problems of inefficiencies and the increased likelihood of error that the Final Rules were promulgated to fix, exacerbated by the confusion among patent filers and the likely increase in erroneous filings. They will also have to pay the costs of retraining their employees to institute the Final Rules if they go into effect on a future date.

GSK characterizes the PTO’s harm as primarily sunk costs already incurred by training personnel and changing the computer systems to implement rules the organization knew might not go into effect. Any costs incurred by a delay in implementing the Final Rules would thus be merely the cost of maintaining the status quo. Additionally, GSK downplays the PTO’s expectation that the Final Rules would provide a significant gain in efficiency or a reduction in backlog. GSK argues that they, by contrast, will begin to experience the irreparable harms discussed above as soon as the rules go into effect, and do not have any avenues at all for maintaining any version of the status quo when it comes to certainty about their
patent protection. They will instantly suffer from uncertainty regarding the protection afforded their patents and their corresponding investment risk, in addition to the costs of attempting to comply with the Final Rules. Thus, the Court finds that, although the hardship to the PTO is not nonexistent, the uncertainty and loss of investment suffered immediately by GSK tilts the balance of the hardships in their favor.

4) The public interest

The PTO argues that the public interest is most benefitted by the Final Rules going into effect immediately. The PTO claims that the rules promote efficiency and timeliness and are needed immediately to alleviate the harm entrepreneurs suffer because of the current system’s uncertainty. In addition, patent applicants who are preparing to comply with the Final Rules will face uncertainty as to how to proceed with patent prosecution and as to which rules will govern their application during the period of an injunction.

GSK asserts that preserving the status quo while the litigation proceeds is important for maintaining stability for patent holders. Innovation is encouraged when patent holders and applicants have certainty about how their patents will be treated. The fact that three amicus briefs were filed by organizations representing a wide array of industries, all urging the Court to grant the preliminary injunction because their interests will otherwise be harmed, further demonstrates the possibility of potential immediate harm to the public if the rules are allowed to go into effect on November 1.

Many companies rely upon the stable, reliable protection afforded by the current patent system in determining whether it is costeffective to abandon their trade secret protection by pursuing a patent. Implementation of the Final Rules changes those companies’ calculus and immediately decreases their ability to pursue costly new innovations. Allowing the implementation of rules that may or may not remain in effect is likely to cause much greater uncertainty and squelching of innovation than a preliminary injunction giving the Court time to consider the validity of the Final Rules before they go into affect. Accordingly, the Court will find that the public interest is most served by continuing the status quo and granting the TRO.

Therefore, after considering the likelihood of GSK’s success on the merits, the possibility of irreparable harm to GSK if the injunction is not granted, the balance of hardships between the parties, and the public interest, the Court finds that GSK’s Motion should be granted.